Moody’s puts 14 UK banks on watch list

‘DOWNGRADE’:：The ratings agency said the review was not driven by a deterioration in the banks’ financial strength, but changes in government support after the crisis

AFP, LONDON and BEIJING

Wed, May 25, 2011 - Page 10

Moody’s Investors Service said yesterday it was reviewing 14 British banks — including Lloyds TSB Bank and Royal Bank of Scotland — for possible downgrade because of less government support in case of a bailout.

Moody’s said the review would reassess the level of systemic support incorporated in the ratings of UK financial institutions in order to align their ratings with changes to government support for banks now that the global financial crisis has eased.

“The reassessment is not driven by either a deterioration in the financial strength of the banking system or that of the government,” said Elisabeth Rudman, a Moody’s senior credit officer and lead analyst for a number of UK banks.

“It has been initiated in response to ongoing guidance from the UK authorities [the Bank of England, the Financial Services Authority and the Treasury] that banks that fail in the future should not expect capital injections from the public purse,” she added.

Current levels of systemic support account for two to five notches of ratings uplift for the large UK banks and one to five notches of uplift for the small to medium-sized financial institutions, Moody’s said.

However, the ratings agency said it expects to retain a high level of systemic support uplift in the senior debt ratings of the major UK banks, as it believes regulators do not have all the tools necessary to resolve such institutions without causing financial instability.

The banks whose ratings are to be reviewed for possible downgrade are: Bank of Ireland (UK) PLC, Co-Operative Bank PLC, Coventry Building Society, Lloyds TSB Bank PLC, Nationwide Building Society, Newcastle Building Society, Norwich & Peterborough Building Society, Nottingham Building Society, Principality Building Society, Royal Bank of Scotland PLCS, Santander UK PLC, Skipton Building Society, West Bromwich Building Society and Yorkshire Building Society.

Meanwhile, a Chinese ratings house yesterday downgraded Britain’s sovereign credit rating over what it said was the country’s gloomy economic growth prospects and weakening ability to pay back debt.

Dagong Global Credit Rating Co (大公國際信評) downgraded the UK’s local and foreign currency sovereign credit rating to A+ from AA- with a “negative” outlook for its solvency, it said in a statement.

The downgrade reflected “the deteriorating debt repayment capability of the UK and the difficulty in improving its sovereign credit level in a moderately long term in the future,” it said.

Uncertainties arising from the Bank of England’s future monetary policy and the impact of debt-laden European countries on the British financial system are “likely to further worsen the government’s fiscal status,” it said.

The British economy grew 1.3 percent last year and Dagong said it expected the rate to show little or no change in the coming two years, which “directly curbs the improvement of the national economic status.”

Britain’s deficit for the 2010-2011 fiscal year fell from almost 162 billion euros (US$228 billion) the previous year to just below 147 billion euros, after a swathe of cuts ordered by British Prime Minister David Cameron.

That meant the deficit was logged at 10 percent of national output, down from 11.5 percent 12 months earlier.

It is the third-highest in the EU after that of Ireland and Greece — higher than either Spain or Portugal, next in line at just above 9 percent each.

However, Britain’s cumulative national debt rose almost 20 percent year-on-year to more than 1.2 trillion euros and now accounts for 82.5 percent of GDP.